Markets are central institutions in societies such as ours, and it seems appropriate to
ask whether markets treat individuals justly or unjustly and whether choices individuals
make concerning their market behavior are just or unjust. After all, markets influence
most important features of our lives from the environment in which we live to the ways in
which we find pleasure and fulfillment. Within market life we collectively determine the
shape of human existence.<1>

Yet in Chapter 4 of Morals by Agreement<2>David
Gauthier argues that a perfectly competitive market is "a morally free zone", an
arena of social life in which moral evaluation has no role to play. Gauthier is not
maintaining that real markets are such morally free zones, but his claim is still
remarkable. If it were correct, morality would find applicability to markets only in
virtue of the imperfection of those markets. I find this claim difficult to accept and
hard to reconcile with comments Gauthier makes about real imperfect markets and with his
general views on justice.

Although I shall focus on Gauthier's views, my points are general and the issues of
wider importance. For Gauthier's thesis is a sophisticated and idiosyncratic variant of
the perennial view that undisturbed market economies are morally attractive because they
permit people freely to get what they deserve.<3> This
view is multiply mistaken, for at the very least, one must realize (as Gauthier stresses)
that real markets are not perfectly competitive, and their many imperfections are morally
significant. But even with respect to perfect markets, this general view, including
Gauthier's special variant, is indefensible. Competitive markets place people in intimate
relations with one another. The many consequent benefits and costs are joint social
products, not the sole responsibility of the individuals upon whom they fall. How this
social surplus is to be distributed is an unavoidable problem for a theory of social
justice. One cannot correctly say that a particular distribution or the actions of
individuals that give rise to it are beyond moral assessment.

1 Gauthier's view

A perfectly competitive market (PCM) is characterized by so many buyers and sellers in
every market that no one can influence prices. There is no room for bargaining. There are
no "non-pecuniary" externalities and no jointness in consumption. My activities
influence you only through the market. A very strong form of mutual disinterest is
essential.<4> There is no force or fraud, and there
are no failures of information or rationality. Furthermore, the activities of individuals
on the market never undermine its perfection. For example, no one is able to acquire a
monopoly.<5>

Gauthier's claim that the PCM is a morally free zone seems ambiguous. In the first
interpretation, he is saying that moral assessment of the actions of individuals on a PCM
is out of place (see particularly pp. 84, 96). On the second interpretation, he is
maintaining that moral assessment of a PCM itself is out of place (pp. 94-95). The
first interpretation is weaker than the second, because it may be possible for individuals
to commit no injustices when conforming to the norms of institutions that are themselves
unjust. I shall take Gauthier as defending only this weaker view that the actions of
individuals on a PCM are not open to moral assessment.<6>
I shall take it as an implication of Gauthier's view that if initial holdings on a PCM are
not unjust, then the outcome of individual actions on a PCM is not unjust either.

So, as I am reading Morals by Agreement, it is as mistaken to attempt a moral
assessment of an action an individual takes on a PCM as it is to ask whether a solitary
individual is acting justly. In saying this, Gauthier is not committed to the claim that
the outcome of a PCM cannot be assessed. On the contrary, in Gauthier's view if the
initial holdings are just, that outcome will be just, and if the initial holdings are
unjust, that outcome will be unjust. But the choices made within a PCM are neither.<7>

It might be objected that the claim that PCMs are morally free zones is trivial, since
the absence of force and fraud is built into the definition of a PCM. Suppose one were to
maintain analogously that a perfect family is a morally free zone because by definition
there is no force or fraud and the combination of concern for others and a willingness to
cooperate avoid all sub-optimal outcomes. Is Gauthier's claim any more illuminating?

Indeed qualms about whether Gauthier's position is trivial are aggravated by the
recognition that free-rider and prisoner's-dilemma problems arise within market
interactions. (If the seller delivers first, the buyer is better off not paying.) The
absence of force or fraud requires that these coordination problems already be solved. As
Gordon Winston argues, "The immediate question is how private transactions actually
do survive this incentive to free-ride that is revealed in the time-shape of
transaction....The deeper reasons for the triumph of private trading despite its
temptations and risks are revealing, I think, of limitations of the motivations attributed
to economic man.<8>"

Are market choices "morally free" in any more interesting way than are any
choices that satisfy all relevant moral constraints?

In response to Buchanan's emphasis on the moral presuppositions of the market, Gauthier
has offered a tentative reformulation of his claims. "How morality manages to
"overcome its directly constraining character" remains mysterious to me. But let
us not pursue the point further, for it is still worth enquiring whether the individual on
a PCM who avoids "force and fraud" is beyond any other moral
constraint."

Gauthier offers a tripartite argument for the conclusion that PCM's are morally free
zones. First, Gauthier maintains that a PCM grants each individual all the liberty of a
Robinson Crusoe. There is no compulsion or constraint (apart from whatever prevents force
or fraud). Second, the incomes individuals receive in a PCM are exactly equal to the
contribution made by the inputs that the individuals supply. So there is no
redistribution. Nothing of mine is given to anyone else. Thus PCMs are impartial and any
interference is necessarily partial. Third, PCMs function optimally. The choices agents
make in seeking to maximize their individual utilities lead to an outcome that cannot be
changed without making someone worse off. There is no conflict between individual utility
maximization and Pareto optimality and thus no space in which morality might fit. The
liberty, impartiality and optimality of a PCM establish its credentials as a morally free
zone. Let us examine each of these three branches of the argument in turn.

2 Freedom and Perfect Competition

Gauthier describes the freedom of a Robinson Crusoe as follows:

Crusoe is free to use her capacities in whatever way will best
fulfill her preferences given the external circumstances in which she finds herself. Her
capacities of course limit the extent of her fulfilment. Her preferences affect the use
she makes of her capacities--not in limiting what she can do but what she finds worth
doing. But neither of these limitations
constrains Crusoe's freedom. A person is free in so far as she is able,without interference,
to direct her capacities to the service of her preferences.(p. 90; my emphasis)

This freedom is preserved in a PCM because

Each person is thus a Robinson Crusoe, even in the market. Of
course the existence of other persons, and the possibilities of exchange, affect the
limits on each person's behaviour.

...But these limitations are the interpersonal analogues of thos
experienced by Robinson Crusoe alone on her island. If her freedom is not constrained by
her limited talents and particular interests, then it remains unconstrained when she
leaves her island and comes to relate her talents and interests with those of others.(p.
91)

...no one is subject to any form of compulsion, or to any type of
limitation not already affecting her actions as a solitary individual. (p. 96)

The argument seems to be that although the preferences and capacities of others (along
with my capacities and preferences) determine the range of opportunities available to me,
others cannot employ their capacities intentionally to influence my range of
opportunities. The preferences and capacities of others are thus analogous to the rainfall
on Crusoe's island and are thus the same "type of limitation". Market choices
may thus be as removed from moral assessment as are Crusoe's.

But there is a difference. The new limitations a solitary individual would encounter
upon joining a PCM are not facts of nature, like the terrain of a new island. Given
Crusoe's capacities and preferences, there is nothing that can be done about the
circumstances in which she finds herself, while the terms of interaction, even on a
perfect market, are not natural, but the result of a prior (moral) determination of the
scope and nature of rights and of a prior hypothetical cooperative agreement.<10> So it must also be shown that no rational individual would object to
the rules governing a PCM.

The second and third branches of Gauthier's argument for the moral freedom of a PCM
apparently go much of the way toward showing that a rational individual would not object
to the terms of a PCM, for each individual benefits proportionally to her contribution and
the result is optimal. But it is not true that every rational agent would consent
to the ground rules of a PCM. One reason might be that some agents prefer to live in ways
that a PCM and the economic development that results render impossible.<11> An ascetic hermit seeking isolation, peace and poverty arguably has a
better chance of obtaining these in the state of nature. (For more general problems see
below pp. ??.)

3 Benefit and Marginal Contribution

The second part of Gauthier's argument that PCMs constitute morally free zones relies
on the equality between return and contribution to show that PCMs are impartial:

Robinson Crusoe enjoys the full benefit of her labours. Similarly
those who engage in market interaction enjoy the full benefit of their labours. Under
certain conditions, the value of total market output is equal to the sum of the marginal
value each person contributes to that output--the sum of the marginal differences each
person makes. In the free exchanges of the market each may expect a return equal in value
to her contribution....Thus the income each receives, or the value of the goods each is
able to consume, is equal to the contribution she makes, or the marginal difference she
adds to the value of the total product. (pp. 91-92)

Since each receives what is her own, there is no space or need for morality. The image
is of an individual who is causally responsible for her marginal contribution and whose
marginal contribution then determines her income. But both of these implict causal claims
are false and neither is implied by the mere equality between factor payment and marginal
product.

Consider first whether marginal contribution determines income. In fact both are
effects of "common causes"--the underlying determinants of the general
equilibrium that obtains in a PCM. The equality is a trivial accounting identity and has
no causal significance. For the equality between income and marginal contribution obtains regardless
of what incomes are. Suppose (leaving the PCM) government decrees or unions negotiate a
wage w' that is larger than w*, the wage that would obtain in perfect competition. Are the
hypothetical homogenous workers then receiving more than their marginal contribution? Not
at all. Assuming (as is standard) diminishing returns, firms will cut back on their labor
requirements until the marginal contributions workers make will equal w'.

Furthermore (as Gauthier implicitly conceeds in his discussion of rent), an
individual's marginal contribution is socially determined. It is not causally determined
solely by the individual. The marginal contribution of a worker when wages are set at w'
is larger than when wages are w* not because the worker is working harder or has otherwise
changed, but because wages are set at w' and firms have consequently adjusted their
employment. Indeed, since competitive equilibria are not generally unique, a worker's
marginal contribution can differ without any interference with the operation of the
market and without any difference in technology or in anybody's tastes or holdings.

Consider in this regard Gauthier's views on rent. Gauthier argues that individuals who
own scarce resources, such as Wayne Gretzky's talents as a hockey player, are not entitled
to the rent such resources command.

Society may be considered as a single cooperative enterprise. The
benefit represented by factor rent is part of the surplus afforded by that enterprise, for
it arises only in social interaction. But then that benefit is to be distributed among the
members of society on the terms established by minimax relative concession. Each person,
as a contributor to social
interaction, shares in the production of the benefit represented by factor rent. Wayne
Gretzky's talents command factor rent because they are scarce, but their scarcity is not a
characteristic inherent in his talents,...(p. 274)

The compensation Gretzky receives is equal to the value of the contribution his talent
makes. Since Gretzky's talents are unique and his compensation a matter of negotiation, it
is correct here (unlike in the case of perfect competition) to say that Gretzky's talents
command rent because they are scarce. But, as in the case of perfect competition,
and as Gauthier recognizes here, the scarcity or the value of the contribution "is
not a characteristic inherent in his talents, but a function of the conditions of supply,
and so of the relation between his talents and those of others, and a function also of the
conditions of demand, and so of the relation between his talents and the interest of
others in attending hockey games."(p. 274) These last words are entirely correct, but
exactly the same could be said of the salaries in a PCM for unremarkable accountants,
cooks, or philosophers. To compare market inequalities with the inequalities that may
exist among non-interacting individuals hides that fact that the inequalities causally
depend on the interaction. The income one receives in a PCM is nothing like Crusoe's
income, and the fact that it is equal to marginal contribution is of no moral
significance.<12>

Indeed Gauthier's comments on rent directly undermine his claim that a PCM is a morally
free zone. For there are rents on PCMs, and if permitted to exchange freely, individuals
will wind up distributing rents in a way that Gauthier regards as unjust. There will, of
course, be no Wayne Gretzky's (which fact should be enough to undermine the appeal of a
PCM!), because there must be many buyers and sellers to eliminate the possibility of
bargaining. But unique talents are not necessary for rents. Suppose that thousands of
hand-made Green Island baskets are produced each day and provide most of the basket
weavers with the going wage net of the costs of cane and bandages for their blisters. A
number of the islanders, however, have a remarkable innate talent at basket weaving and
can produce many more baskets a day than their fellow islanders. But the output of these
gifted weavers is only a minority of the total output. The gifted weavers then earn a
higher wage that includes an economic rent. Since a PCM can generate this outcome, which
Gauthier regards as unjust (p. 274), from the initial holdings that are, by assumption,
not unjust, a PCM is not always an impartial morally free zone.

The difficulty here is fundamental and has nothing to do specifically with rents.<13> The principle that Gauthier invokes in his
discussion of rents, which is fundamental to his view of justice, is that if a surplus
results from the relationship between the activities of different people, then its
distribution is an appropriate matter for bargaining. Consider the following remarks
Gauthier makes concerning rent:

The recipient of rent benefits from the scarcity of the factors
she controls--a scarcity which is of course entirely accidental from her standpoint, since
it depends, not on the intrinsic nature of the factors, but on the relation between them
and the factors controlled by others. She receives more than is needed to induce her to
bring her factors to the market; rent is by definition a return over and above the cost of
supply.(p. 98)

As we shall see in a moment, these comments apply to the entire surplus over autarkic
production, not just to rents.

The cost of supply is the amount needed to bring forth the supply. Suppose wages for
unremarkable pearl divers were the same as the wages of the untalented Green Island basket
weavers. If the talented weavers were ordinary divers, then the opportunity cost of
foregoing diving for weaving would equal the wages of the untalented basket weavers. The
returns of the talented from basket weaving would be larger the cost of the supply of
their labor services, and they would earn rent.

But notice that the benchmark used to determine cost and thus whether there is rent<14> is a market alternative. If the gifted
weavers were equally gifted divers, then they would earn no less, but none of it would now
be rent.<15> These market alternatives depend on the
same "accidental" scarcity that Gauthier discusses in the last quotation. Cost
of supply is not what "is needed to induce her to bring her factors to the
market"; it is the amount need to induce her to bring her factors to this
market rather than some other one. Gauthier remarks that on a PCM "...each benefits
from and only from the contribution she makes." (p. 97, emphasis added). But
even abstracting from the existence of rents, this claim is not true. It implies that each
agent would be just as well off in the absence of the others, that my well-being is
independent of the choices of others. But a PCM is pointless unless individuals benefit
relative to autarkic production.

The surpluses individuals obtain from market interactions, just like rents, depend on
the relations between the factors different individuals control and the choices
individuals make (as Gauthier sometimes recognizes, see p. 91, for example). What Gauthier
says about Gretzky's rent should apply to the entire surplus over autarkic production:
given Gauthier's views, it should all be distributed according to minimax relative
concession.<16> The central difficulty is that in a
PCM there is no non-morally-arbitrary way to identify an individual's own contribution as
determining an individual's income.

4 The Coincidence of Maximization and Optimality

The third part of Gauthier's argument maintains that there is no place for constraints
on individual action, because the outcomes are optimal without any.

Choice is neither morally right nor wrong, because the
coincidence of utility-maximization and optimization in free interaction removes both need
and rationale for the constraints that morality provides, which enable us to distinguish
choices as right or wrong. Moral constraints arise only in the gap created by conflict
between the two rationality properties, when mutual benefit is not assured by the pursuit
of individual gain. We assess outcomes as right or wrong when, but only when, maxmizing
one's utility given the actions of others would fail to maximize it given the utilities of
others. (p. 93)

Moral assessment of individual choices on a PCM is thus as out of place as is moral
assessment of Crusoe's choices.

Despite its apparent force, this argument either fails to establish its conclusion or
flirts with the dangers of trivialization discussed before. As Gauthier points out (p.
85), a PCM presupposes a background morality (the absence of force and fraud). Thus, by
definition, choices on a PCM involve no force and fraud, and in this way, Gauthier's claim
may be sustained (and trivialized). But a hypothetical rational agent, Harold, facing a
market that is, apart from Harold's actions, perfectly competitive, might well consider
whether force or fraud would better maximize utility than does honest market interaction.
If Harold eschews force and fraud, his choices are, to that extent, just, rather than
beyond moral assessment. Furthermore, putting aside questions of compliance, one needs
also to consider whether agreeing to abide by the rules that make possible the PCM is the
maximizing strategy.

Showing this might seem a trivial task, for after all a PCM results in an optimal
outcome. But, first, recall that competitive equilibria are not generally unique. An
alternative equilibrium (which might be quite different) could benefit a majority at a
cost to a minority. Why can there be no moral assessment of the relative merits of
alternative equilibria? Why might not rational bargainers prefer an equilibrium that does
not obtain to one that does and criticize the one that does on distributional grounds?

Furthermore, how well off someone is in a PCM depends on what initial holdings one
actually has. Suppose that those initial holdings satisfy the constraints that Gauthier
discusses under the label of the "Lockean proviso" (to be discussed below).
Nevertheless it seems that there will be occasions, in Gauthier's own view, in which the
results of a PCM would be unjust. Consider the following remarks:

Suppose for example that two persons are of roughly comparable
talents, energies, and interests, but that one is provided with an education fitting him
for a stimulating and socially valuable career, well remunerated and highly esteemed,
whereas the other is denied such an education,....We should of course find this structure
unfair... because it fails to relate benefits to the contributions each person would have
made had each enjoyed similar opportunities and received similar encouragement.(p. 263)

Suppose that the different educational opportunities result not from prior injustices
but from differences in the culture and interests of the particular families in which the
two individuals are raised.<17> Such differences can,
of course, obtain among individuals in a PCM, and the benefits the individuals receive on
the PCM will then be unfair. Benefits must be related not to initial holdings, even if
these satisfy Gauthier's proviso, but to the contributions an individual would have made
"in that social strcture most favourable to the actualization of his capacities and
character traits and to the fulfillment of his preferences..."<18> The optimality of a PCM does not insure that constraints on
individual behavior are never needed.

In considering the implications of the optimality of a PCM and of the equality between
contribution and income for the moral status of a PCM, something ought to be said about pecuniary
externalities. For these, unlike non-pecuniary externalities, are present in PCMs.<19> Suppose that in a society, such as Britain's in the
early 19th-century, cloth is woven by hand. Someone then invents power looms. Capitalist
Howard builds a steam-powered weaving factory. If the smoke from his factory diminishes
the quality of air hand weavers breath or soils their wares, then there is a non-pecuniary
externality.<20> If Howard's cheap cloth renders
valueless the hand weavers' human and material capital and destroys their way of life,
then there is a pecuniary externality. The harms or benefits involved in pecuniary
externalities, unlike those involved in non-pecuniary externalities, are all perpetrated
through markets and do not lead to sub-optimal results.<21>

In a PCM the many Howard Capitalists who invest in power looms cause great and obvious
harm to hand weavers. Why are their actions not subject to moral assessment? Why can the
question of their justice or injustice never be raised? Some possible answers: (1) The
many Howards are, we suppose, not aiming to harm the hand weavers. But, although the
intention may be morally relevant, it does not preclude moral assessment of the action.
(2) Each of the Howards, by assumption, makes only a small difference in the well-being of
the hand weavers. But, although there is some controversy here,<22> the actions of individuals that contribute only a small portion of a
serious harm are still subject to moral evaluation. (3) By assumption, profit-maximizing
Howards will necessarily invest in power looms. But "everybody does it" has
never been a complete moral defense; one can still ask whether what everybody does is
right. (4) One might argue that, given the new knowledge, the looms and skills of the hand
weavers are already worthless. But they are not worthless, until the more efficient
technology is actually put into place. (5) Finally, replacing hand looms with power looms
increases the productive capacity of the economy. Although it is not a Pareto improvement,<23>--for the hand weavers obviously suffer--it is
probably a "potential Pareto improvement". Were compensation paid to the hand
weavers, it would be possible to make the introduction of power looms an actual Pareto
improvement. But neither the superior efficiency (in this sense) of power looms nor the
optimality of a PCM shows that the operation of a PCM is beyond justice.

Might not rational individuals prefer an arrangement where compensation for pecuniary
externalities is, in so far as feasible, paid? Apart from the administration costs, such
an arrangement is no less optimal than a PCM, no less impartial, and seems to leave
individuals as close to Crusoe's freedom as does a PCM. If such an arrangement would
indeed be preferred by rational bargainers, then PCMs are not morally free zones; they are
unjust, and in not paying compensation, the Howards act unjustly.

5 Can Initial Holdings Bear the Moral Burden?

Even if a PCM were a morally free zone, as Gauthier maintains, outcomes of a PCM are
not beyond moral criticism. For the initial holdings that individuals bring to the market
are subject to moral evaluation. If these holdings reflect prior predation, fraud and
violence, then the results of the market will not be fair. In Gauthier's view all
questions concerning the justice of outcomes on a PCM are questions about the justice of
the initial holdings. But this places more weight on an account of which initial holdings
are just than such an account can possibly bear.

The justice of initial holdings is not directly determined by social contract.
Individuals do not bargain about what these initial holdings should be, for, in Gauthier's
view, these initial holdings are just as much inputs into any bargaining process as they
are inputs into market interaction. They are instead determined by the "Lockean
proviso". The basic idea is that individuals eschew taking advantage of one another
in order to make feasible and stable both market interaction and cooperative bargains.
Gauthier sketches a hypothetical history in which individuals convert Hobbes' brutish
state of nature into Locke's docile one by not benefitting themselves at the expense of
others. Individuals so constrain themselves not because they are altruists or are already
moral, but because they recognize that market interaction and cooperative bargains require
this forbearance (see below p. ?? and above footnote ??). The culmination of this process
enables individuals to interact on the market and to make cooperative bargains in case of
market failure.<24>

If some state of affairs comes about as a result of transactions on a PCM, and the
initial holdings satisfy the Lockean proviso, then that state of affairs is, Gauthier
maintains, just. That state of affairs might, Gauthier suggests, involve extreme
inequality:

The rich man may feast on caviar and champagne, while the poor woman starves at his
gate. And she may not even take the crumbs from his table, if that would deprive him of
his pleasure in feeding them to his birds.

Distressing as we may find this situation, we should not be misled by it. We think of rich
and poor within a social context, and we think that his wealth and her poverty are in some
way related. If so, then in examining how the situation came about, we may well find a
violation, if not of the proviso, then of the principle of minimax relative concession.<25>

Everything turns on the real history of market transactions (and the hypothetical
history of bargaining over their normative setting).

Exactly how does the history matter? There are two alternatives here, which are both
unsatisfactory. Either what actually happened in the past determines whether
present outcomes on a PCM are just or what people believe happened determines
whether the outcomes are just. Gauthier, like Nozick<26>
endorses the first view. But this implies that two social states can be identical in all
detectable current properties (including the beliefs of the agents involved and the
evidence concerning the past) yet one be just and the other unjust.

Although such a view is disquieting, it is preferrable to the other alternative, which
gives to those who write the history books the power to determine what is just and what is
not. Yet it is not clear that Gauthier can avoid this unpalatable conclusion. For what
leads people to comply with Gauthier's Lockean proviso and with the bargains and market
outcomes that proceed from its basis is the purported fact that compliance with bargains
or market outcomes on any other basis will be unstable. Gauthier's arguments for this
conclusion are complex and are not the subject of this essay, but they all suppose that
some individuals will have grounds for complaint with bargains or market outcomes that
proceed from other initial holdings.<27> But if
individuals falsely believed that the conditions of the proviso were met, and nothing
except the history matters, then bargains and market outcomes will be stable; and if
individuals falsely believe that the conditions of the proviso were not met, then the
bargains and market outcomes will be unstable.

Since what is just depends not only on what people will comply
with, but also on what they will agree to, one might object that this
line of argument does not show that beliefs about the past determine
whether current outcomes are just. But this response may not be open
to Gauthier, because both the proviso and Gauthier's solution to the
bargaining problem are in large part determined by the exigencies of
compliance.<28>

It is not credible that either beliefs about the past or the past
itself could be so decisive in matters of justice. In Gauthier's
view, individuals are "constrained maximizers." They have a
powerful disposition to do the part that the joint strategies they
agreed to demand of them, provided that the joint strategies are
impartial and that others will, for the most part, do their part as
well.<29> These dispositions
must operate on individuals' characters and make them keep their
promises, follow the laws, etc. Could these dispositions credibly be
refined enough to acquire or lose their binding power depending on
what ancient historians announce? And toward exactly whom are the
dispositions of constrained maximizers supposed to change when they
read Marx's chapter on "primitive accumulation" and
discover that not all capitalists began their ascent by working
harder than others?<30>
Among real people could history matter so much? On the contrary, the
woman in Gauthier's parable who watches the birds dining on the
crumbs from the rich man's table is not going to be reconciled to her
penury by tales about the justifiable holdings of their respective
ancestors, what these ancestors would rationally have agreed to, and
how market interactions in fact turned out. Market interactions
create a joint or social surplus, and whether that surplus is fairly
distributed depends, at least in part, on the pattern of current
distribution quite apart from historical facts or beliefs.<31> Moral judgment of current
market choices is both unavoidable and entirely appropriate.

* I want to thank Nora Freed, Andrew Levine,
Alan Nelson, Guy Perez, an anonymous referee and especially
Christopher Morris and Julius Sensat for their valuable criticisms of
earlier drafts and their suggestions for improvements. I have also
profitted from discussions with Cristina Bicchieri and Jean Hampton
and from correspondence with David Gauthier. Back to text

1. For a summary of arguments concerning the justice and
efficiency of markets, see Allen Buchanan, Ethics, Efficiency and
the Market (Totowa, New Jersey: Rowman and Allenheld, 1985). Back to text

3. For criticisms of more common versions of this
view see Allan Gibbard, "What's Morally Special about Free
Exchange?" pp. 20-28 of Ellen Paul, Fred Miller, Jr. and Jeffrey
Paul, eds. Ethics and Economics (Oxford: Blackwells, 1985) and
Amartya Sen, "The Moral Standing of the Market," pp. 1-19
of Ethics and Economics. Back to
text

4. Christopher Morris usefully distinguishes between
nontuism, mutual disinterest, and what he calls "materialism or
consumerism", which is required for the standard welfare
theorems in "The Relation Between Self-Interest and Justice in
Contractarian Ethics," in in Ellen Paul, Fred Miller, Jr.
Jeffrey Paul and John Ahrens, eds. The New Social Contract: Essays
on Gauthier (Oxford: Basil Blackwell, 1988), p. 123 Back to text

6. If Gauthier intends only the weaker view, it is
puzzling why he maintains that individual actions are not subject to
moral appraisal rather than that they are all morally permissible or
right. Gauthier argues on p. 93 that it is a mistake to regard
actions as morally right, because no moral constraints are
applicable. But only when force and fraud are somehow eliminated are
individuals morally free to do as they choose. For this point and the
possibility of distinguishing the weaker interpretation of Gauthier's
claim, I am indebted to Julius Sensat. Since I am concerned with the
whole laissez-faire tradition, some of my comments will also
be directed to the stronger view that assessments of PCM's themselves
are out of place. Gauthier repudiates this stronger view in his
"Moral Artifice," Canadian Journal of Philosophy 18
(1988), pp. 412-13. Back to text

7. Let us set aside qualms based on the
possibility that interactions on a PCM would result in imbalances in
political power that would in turn threaten injustices in cooperative
ventures, or on the possibility that market life will undermine, as a
matter of contingent psychological fact, the background morality that
constrains individuals to eschew force and fraud. Back to text

8. "Three Problems with the Treatment of Time
in Economics: Perspectives, Repetitiveness, and Time Units," in
Gordon Winston and Richard Teichgraeber, eds., The Boundaries of
Economics (Cambridge: Cambridge University Press, 1988), p. 47.
See also James Buchanan, "The Gauthier Enterprise" in
The New Social Contract, p. 89. Peter Danielson's suggestion
that the market is a "cooperation-free" zone in "The
Visible Hand of Morality," Canadian Journal of Philosophy
18 (1988), p. 367 is thus still too strong. Back
to text

9. "Morality, Rational Choice, and Semantic
Representation: A Reply to My Critics," in The New Social
Contract, pp. 203-4. Back to text

10. Gauthier is unclear in Morals by
Agreement on whether the existence of a PCM requires a prior
bargain and indeed seems sometimes to suggest that none is needed,
but I do not see how he could maintain this. For example, the smooth
functioning of a market requires that property rights be precisely
delineated, and such a precise delineation of property rights
requires prior conventions. Gauthier's "Lockean proviso"
could not suffice. See James M. Buchanan, The Limits of Liberty:
Between Anarchy and Leviathan (Chicago: University of Chicago
Press, 1975), esp. p. 9, "The Gauthier Enterprise," The
New Social Contract, p. 89 and Gibbard's, "What's Morally
Special about Free Exchange?" Some of Gauthier's remarks (esp.
p. 84) suggest that a PCM is a result of bargaining, and, in any
event, in his recent "Moral Artifice," pp. 412-13, Gauthier
explicitly insists that a PCM presupposes prior agreement. Back to text

12. For some further weighty criticisms of the
moral significance of the equality between factor price and marginal
product see Sen, "The Moral Standing of the Market," p. 16.
Back to text

13. So, contrary to the suggestion on pp. 98-99,
it will not do to make an exception in the case of rents or to
abstract from rents. Julius Sensat helped me to see that the problem
extends to the whole surplus over autarkic production. Back to text

14. In addition to rent, one should also mention
consumer's surpluses, which depend on the difference between what one
pays for a commodity and what one would have been willing to pay. In
fact, the distinction between rent and consumer's surplus is
superficial and of little theoretical interest. See D. M. Winch,
Analytical Welfare Economics (Harmondsworth: Penguin, 1971),
pp. 135-37. See also John Harsanyi's discussion of Gauthier's views
on rent in his "Review of David Gauthier's Morals by
Agreement." Economics and Philosophy 3 (1987), pp.
345-48. Back to text

15. If Gretzky were as fine a baseball player as
a hockey player, then his high salary might include no rent. If one
considers Gretzky's employment alternatives as positions with other
hockey teams, as Jean Hampton suggests in "Can We Agree on
Morals?" Canadian Journal of Philosophy 18 (1988), p.
339, then one would regard Gretzky as in fact earning no rent. Back to text

16. And since the proceeds of autarkic production
are, we may assume, pitiful, the initial bargaining positions become
unimportant, and Gauthier's views have highly egalitarian
implications, as noted by Buchanan, "The Gauthier
Enterprise," p. 88 and by Russell Hardin, "Bargaining for
Justice," in The New Social Contract, p. 73. Back to text

17. Perhaps such large differences in education
are unjust. Since Gauthier does not discuss what sort of equality of
opportunity justice requires, it is difficult to judge. If need be,
one can modify the example to focus on the different personal
resources, such as trust, enterprise, or social graces, that families
provide. Gauthier emphatically does not want to compensate for
differences in character traits, even though these may be as much
social products as education and as important to one's life
prospects. He insists that these must be regarded as part of a
person, lest we fail to take individuals seriously (pp. 237, 253-54).
There are obvious difficulties here. Back to
text

18. "provided that this structure is a
feasible alternative meeting the other requires of Archimedean
choice." (p. 264) Back to text

19. Gauthier claims that in a PCM "...no one
is affected, whether beneficially or harmfully, by any market
activity to which she has not chosen to be party." (p. 96). If
this were true, it would rule out pecuniary as well as non-pecuniary
externalities, but pecuniary externalities cannot be ruled out,
unless it is assumed that a PCM is completely unchanging or that
capital, labor and other factors of production can be costlessly
redirected with no change in their value whenever there is
technological change. But Gauthier himself gives an example of a
pecuniary externality (p. 108) and criticizes a utilitarian account
of holdings on a PCM on the grounds of its dynamic instability (p.
107). In a static equilibrium, those who would have been better (or
worse) off if a different higher-cost technology were in use are
affected by the activities of those who employ the actual technology.
See Buchanan, "The Gauthier Enterprise," p. 90. To rule out
pecunairy externalities by defnition would trivialize Gauthier's
views. Back to text

20. In a PCM, there is no unemployment, so hand
weavers will move immediately to whatever new employment they most
prefer. But they have lost at least a large part of the value of
their capital, and the cost of changing their way of life may be
large. Back to text

21. In a completely static economy, it is
arbitrary to distinguish pecuniary externalities from the general
surplus from interaction. But, as Julius Sensat pointed out to me,
the dynamics and change are themselves significant. In real economies
even in the absence of non-pecuniary externalities, monopolies, and
obvious market imperfections, uncertainties are unavoidable, and with
uncertainties come possibilities for strategic behavior and
suboptimal outcomes. How could a changing PCM avoid uncertainties?
What sort of mechanism could enable a PCM to achieve general
equilibrium without out-of-equilibrium trades, uncertainties, or any
possibilities of strategic behavior? Back to
text

22. See Derek Parfit's discussion in ch. 3 of
Reasons and Persons (Oxford: Oxford University Press, 1984).
Back to text

23. S is a Pareto improvement over T if nobody is
better off in (prefers) T and somebody is better off in S. Back to text

24. "Given freedom constrained by the
proviso, so that force and fraud are absent from interaction, a
market emerges. (p. 261) The story thus makes it seem that the market
in a sense "comes first" (hypothetically), and bargaining
only arises because of market failure. "Cooperation arises from
the failure of market interaction to bring about an optimal outcome
because of the presence of externalities." (p. 128) But Gauthier
is not prepared to defend this view. See footnote ?? above. Back to text

25. (p. 218) Taking seriously Gauthier's comments
about rent, the proviso, the benchmark of how well individuals would
have done in the feasible and fair society best suited to them and so
forth, then the rich man will be bothered with old women begging
crumbs only when the women are handicapped or have suffered
extraordinary strokes of bad luck. Notice that although a view such
as James Buchanan's is much less egalitarian than Gauthier's, it is
also less historical; the current pattern of rights and of the
distribution of goods and bads is constrained to reflect the
underlying "natural distribution." See ch. 5 of Buchanan's
The Limits of Liberty. Back to text

26. Robert Nozick, Anarchy, State and
Utopia (New York: Basic Books, 1974). Back to
text

27. "Cooperation on terms less than fair is
therefore less stable, in failing to gain the whole-hearted
acceptance of all participants. (p. 230)

"...each individual's endowment, affording him a base utility
not included in the cooperative surplus, must be considered to have
been initally acquired by him without taking advantage of any other
person...Otherwise those who consider themselves taken advantage
of in initial acquisition will perceive society as unfair,...and
will lack sufficient reason to accept market arrangements or to
comply voluntarily with cooperative joint strategies." (p. 201,
my emphasis) Gauthier also has a separate "equal
rationality" argument that is ably criticized by Jody Kraus and
Jules Coleman, "Morality and the Theory of Rational
Choice," Ethics 97 (1987): pp. 715-49. Back to text

28. The historian's powers will not be unlimited,
of course. They cannot, for example, justify grossly sub-optimal
arrangements. Note that although individuals on PCM's have perfect
knowledge of all economically relevant information, they do not
necessarily perfect knowledge of history. Perhaps one might avoid
the difficulties I suggest by insisting that in a theory such as
Gauthier's, which attempts to establish the rationality of justice,
it is appropriate to abstract from mistakes and false beliefs.
Initial holdings are, on this view, constrained not by the real
exigencies of compliance, but by the hypothetical exigencies of
rational and fully informed compliance. Back to
text

29. Alan Nelson, "Economic Rationality and
Morality, " Philosophy and Public Affairs 17 (1988)
argues on p. 157 that this disposition must be irresistible. But then
there would be no moral freedom. The psychology here is quite
obscure. For quite a different view of this disposition, see Edward
McClennen, "Constrained Maximization and Resolute Choice,"
pp. 95-118 of The New Social Contract. Back to text

31. As Amartya Sen vividly points out in ch. 1, 5
and 10 of Poverty and Famines: An Essay on Entitlement and
Deprivation (Oxford: Clarendon Press, 1981) and in his essay,
"The Moral Standing of the Market, pp. 5-7, accounts of justice
such as Nozick's or Gauthier's that make historical facts or beliefs
decisive can wind up condoning avoidable mass starvation as not
unjust. Back to text